What you will learn
- Arrival price
- Slippage decomposition
- Latency
- Execution benchmark selection
Arrival price
Choose an execution benchmark before judging the result. Arrival price, decision price and a period average answer different questions. Selecting whichever benchmark makes a fill look best creates an outcome-dependent measurement.
Slippage decomposition
For a buy, a fill above the benchmark is an adverse price difference; for a sell, reverse the sign. Multiply by quantity and instrument multiplier to express cash cost. Keep fees separate if they are not embedded in the price comparison.
Latency
Separate observed facts from attribution. Total implementation shortfall can include delay, market movement and execution effects. A simple benchmark difference does not uniquely identify which component caused it.
Execution benchmark selection
Report distributions and conditions alongside averages. Size, volatility, spread and time of day can change execution quality. A mean from heterogeneous orders may conceal the subgroup in which a strategy becomes infeasible.
Worked example
A buy fills at 101 against a preselected benchmark of 100 for two contracts with multiplier ten. The adverse price difference is 20 before fees. Calling the difference one dollar ignores the exposure multiplier and size.
Try it yourself
Repeat for a sell at 99 against benchmark 100 with the same size and multiplier. State whether the difference is favorable or adverse.
Show the worked solution
The sell receives one less per unit than the benchmark, so the adverse difference is again 20. Direction changes the sign convention; the benchmark must still have been chosen consistently.
Apply this to your course project
Compare implementation shortfall under multiple order policies.
Keep the calculation inputs, assumptions and decisions with your work. Practical exercises are self-reviewed; the scored knowledge checks assess the questions shown, not an independent certification of practical competence.